Suburbs Still Hot but Urban Demand Increasing
NAHB: During the pandemic, many city dwellers turned to suburban and exurb homes. The trend continues but less so as cities see a spike in buyer demand.
WASHINGTON – The suburban shift for single-family home buying – precipitated in large part by the onset of the COVID-19 pandemic last year – continues. However, the National Association of Home Builders’ (NAHB) third-quarter Home Building Geography Index (HBGI) released Monday finds a shift as demand for single-family city homes makes a slight comeback.
However, the market share for multifamily construction increased significantly in smaller cities and rural areas, and the pace of new permits eased in larger metropolitan markets.
The HBGI also found strong permit activity in counties with a high concentration of second homes.
“As more workers transitioned back to the workplace, there was a rebound for housing production in urban core markets, as well as ongoing growth in exurban areas,” says NAHB Chairman Chuck Fowke. “And while builders are still grappling with affordability headwinds in both small and large markets, this rebound in housing production in some higher density markets … highlights the need for policymakers to reduce housing supply barriers that are driving up home prices.”
The four-quarter moving average for large metro core area single-family permits grew 5.6% between the third quarter of 2019 and 2020, and exurbs grew at a rate of 12.3%. However, the new permit growth rate between 2020 and 2021 increased to 21.1% for large metro core markets and 30.8% for the exurbs.
“Although all geographies are showing construction growth, the suburban shift is less pronounced than we’ve seen in prior quarters,” says NAHB Chief Economist Robert Dietz. “Some higher density markets see a rebound even as exurbs continue to expand.”
On the multifamily front, an opposite trend is occurring. Apartment construction is growing even faster in lower-density markets, and high-density markets are losing market share. Between the third quarter of 2020 and 2021, the share of new multifamily permits fell from 40.5% to 37.9% in large metro core markets; the permit share in small metro area counties increased from 24.9% to 27.2%.
NAHB says those percentage changes may look relatively small, but they’re statistically significant. Year-to-year multifamily-market changes usually develop slowly, and they rarely move more than one percentage point higher or lower.
Permit growth rate was higher in traditional second home markets (counties with a large share of existing second homes). Between the third quarter of 2020 and 2021, the growth rate for single-family home building in second home markets was 36.1%, compared to an average 23.2% for non-second home markets.
“Over the last year, second home markets have increased their market shares, due to increases in hybrid work arrangements, early retirements and wealth gains in housing and stocks,” says Dietz.
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